Advance given by a Company to Its Director for Sale of Land is not Deemed Dividend: ITAT [Read Order]

Delhi bench of Income Tax Appellate Tribunal (ITAT) has recently held that advance given by a company to its Director/ substantial shareholder cannot be considered as deemed dividend for the purpose of section 2(22)(e) of the Income Tax Act.

Assessee in the instant case, is an individual and shareholder/director in a Company, has filed his return of income for the assessment year and declared a total income of Rs. 4, 90, 94,040.

During the assessment proceedings, the Assessing Officer (AO) has noticed that the assessee received a sum of Rs. 1,67,00,000 from the Company which was not shown in the books of accounts and the same was escaped from assessment. He was of the opinion that the said sum should be treated as deemed dividend in a view that the assessee was one of the shareholders of the company and accordingly he made an addition of the said amount before completing the assessment. CIT (A) also upheld the decision of the AO.

Assessee contended that the aforementioned sum was given by the company for against purchase of property being industrial land for business purpose. But the agreement got terminated because of some other issues. But it neither treated as any advance received from the company nor deemed dividend. And it is not in the nature of advance or loan within the meaning of section 2(22)(e) of the Act.

The Tribunal bench comprising of Judicial Member H.S.Sidhu and Accountant Member L.P.Sahu observed that it is clear that the assessee in the present case was one of the shareholders of the company. In light of the records and documents it was noted that the amount given by the company for the purchase of a property and it is totally in commercial nature. Hence it cannot be considered as an advance or loan.

However After perusing the relevant materials including the ledger of the assessee the division bench concluded that “since the amount was given for business purposes, and assessee could validity perform such act on behalf of company in accordance with authority held by him through Resolution of Board of Directors of Company, amount in question could not be considered as deemed dividend”.